Fed-Fueled Gains May be Short-Lived for Gold ETFs

September 19th at 9:00am by Tom Lydon

The Federal Reserve’s pledge to keep in place its quantitative easing program without any tapering predictably benefited an array of commodities ETFs Wednesday. Gold has struggled for most of this year to the point where bullion is flirting with its first annual loss since 2000. Speculation that the Fed would begin trimming its bond-buying program this year is a big reason why bullion has struggled.

Those struggles went out the door, along with tapering talk, Wednesday. After the Fed said it will keep purchasing $85 billion-per-month in Treasuries and mortgage-backed securities, gold and commodities surged. The iShares Gold Trust (NYSEArca: IAU) jumped 4.4% on volume that was roughly 60% above average. The Market Vectors Gold Miners ETF (NYSEArca: GDX) soared 9% on volume of 114.9 million shares compared to average turnover about 38 million shares. [No Taper Fires-Up Gold ETFs]

The Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT) gained an astounding 27.6% on triple the average trade. Clearly, the Fed’s decision to resist tapering was a boon for gold and mining ETFs, but seasonal trends indicate investors may want to resist getting too excited about the yellow metal. [Gold ETFs Soar, Volatility ETFs Swoon on Fed News]

With less than two weeks left in September, it is worth noting October is usually the worst month in which to be long gold. “It’s also worth noting that October’s poor record is not dependent on just one or two awful years. On the contrary, its performance has been dismal in each of the last three decades,” writes Mark Hulbert for MarketWatch.

Hulbert points out that since the start of this century, October ranks as merely the tenth-best, or third-worst, month in which to own gold. That is only slightly better than the 1990s, when October was the second-worst month for gold. In the 1980s, October was gold’s tenth-best month and overall since 1980, October is the worst month for the yellow metal, according to Hulbert.

The Fed may have just given investors an opportunity to harvest profits in gold ETFs, but if IAU can run another 8% to its 200-day moving average, buyers may step in again to run gold funds higher.

iShares Gold Trust

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of NUGT.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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